It’s been about 40 years since ocean container freight began to disrupt the shipping industry.
By 2067, McKinsey & Co. believes the industry will have many new characteristics that will cause dynamic change, as detailed in a new study, “Container Shipping: The Next 50 Years.”
Autonomous 50,000-TEU ships will plow the seas—perhaps alongside modular, dronelike floating containers—in a world where the volume of container trade is anything from two to five times greater than it is today. One TEU is a 20-foot shipping container or equivalent.
Short-haul intraregional traffic will increase as manufacturing footprints disperse more widely due to converging global incomes and the increased use of automation and robotics. Container flows within the Far East will continue to be huge and the second-most significant trade lane may link that region to Africa, with a stopover in South Asia.
After multiple value-destroying cycles of overcapacity and consolidation, three or four major container-shipping companies could emerge. These businesses could be either digitally enabled independents with a strong customer orientation and innovative commercial practices or small subsidiaries of tech giants seamlessly blending the digital and physical realms.
Freight forwarding as a standalone business will be virtually extinct, since digital interactions will have reduced the need for intermediaries to manage logistics services for multiple participants in the value chain.
“Across the industry, all winners will have fully digitized their customer interactions and operating systems and will be closely connected via data ecosystems,” McKinsey said.
A fully autonomous transport chain will extend from initial loading, stowage and sailing, all the way to unloading directly into autonomous trains and trucks and drone-enabled last- mile deliveries.
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Next Gen megaships
As for the megaships of tomorrow, McKinsey said a 50,000 TEU ship is possible, but likely no larger.
“The search for scale certainly isn’t over,” the study said. “Larger vessels provide greater cost efficiencies in fuel and crews, reduce greenhouse-gas emissions per container, and enable hub-and-spoke network strategies. Moreover, as operators collaborate in alliances, putting a single large vessel instead of two small ones on a given route has its advantages. But when most or all competitors strive to keep up in the race for efficiency, it can quickly erode these benefits and create overcapacity. The ‘lumpiness’ of the industry’s supply is the primary reason for its boom–bust dynamic.”
Three factors could limit its ultimate size. The first is that returns to scale decline with increasing size, so a move from 20,000 to 40,000 TEUs wouldn’t reduce unit costs as much as a move from 10,000 to 20,000 TEUs.
[Read more about global shipping: Shipping Survey Calls for Greater Efficiency, Tech Upgrade]
Second, the narrowness and shallowness of some of the world’s waterways impose physical constraints. The latest designs for vessels that carry 24,000 TEUs have a depth of 16 meters, which leaves scope for further growth in capacity.
Third, over the past decade, the blitz for bigger vessels has strained terminal and port operators, forcing them to invest in new cranes, dredging equipment, reinforced quay walls and extended berths. Unloading containers from bigger ships takes longer because cranes must reach farther across vessels, thus extending berth occupancy and reducing productivity.
“On balance, we do not view 20,000 TEUs as the natural end-point for container ships—50,000-TEU ones are not unthinkable in the next half-century,” McKinsey said. “However, progress will probably be much slower than it was in the past decade. Overcapacity means that new ordering will be slower over the next five to 10 years…But if demand catches up with supply, as it may well do in the early 2020s, the logic of scale will once again drive orders for bigger and bigger ships. Nonetheless, since 40 percent of all shipyard capacity is unutilized, and it’s not conceivable that governments will allow shipyard bankruptcies on a large scale, they could find a way to prompt some level of new ordering.”
The size of boxes could also increase. From the original six-foot-long Conex box the U.S. military used in the 1950s, they have grown to 20 and now 40 feet and above. On U.S. and Chinese roads, the maximum box length is 53 feet, so containers of this size are common for U.S. domestic trade.
Consolidation of carriers
Digging deeper into industry consolidation, McKinsey noted that the top five container-shipping companies now account for 64 percent of market capacity—an increase of nearly 30 percent since 2000.
Scale has conferred some advantages on container shipping companies, with market leaders like Maersk and CMA CGM outperforming their peers on average. But a handful of smaller operators, such as Wan Hai, have found profitable niches in certain geographies. But consolidation is a driving force in the industry, as alliances among shipping businesses give way to outright M&A.
In the past five years, the carriers’ quest for scale has transformed a fragmented market into one shaped by three major alliances. These alliances enable carriers to capture some of the benefits of scale without committing large amounts of capital or adding further capacity in an already oversupplied market. They have in some cases improved the utilization of vessels and enhanced services for shippers by increasing frequencies and making more capacity available.
But alliances still have ample scope to strengthen their collaboration. They could extend it to the global level and enter into commercial relationships that collaborate on procurement and on the delivery of inland services. For a midsize carrier, that could reduce costs by some $100 million, the study said.
On the other hand, alliances could also undermine the competitive advantages of individual carriers. One drawback is the fact that these pacts reduce the scope for differentiation by turning the product into a commodity. The carrier also finds it harder to give customers end-to-end transparency on their shipments– a given box can sail on one of many vessels arriving at one of many terminals. Alliances also help keep smaller carriers in the market and thus prolong overcapacity.
Logistics and beyond
Over the next 50 years, the industry is ripe for digital disruption to tackle a multitude of structural inefficiencies—a lack of market transparency, handovers between providers, cumbersome document flows, costly manual processes, lengthy and painful customer interactions, and other operational issues. Venture-capital flows into transport and logistics are growing rapidly, to the tune of $12 billion in 2015, up from $2 billion in 2013.
Moves by tech giants also loom large in the shipping industry. Amazon is blazing a trail in logistics with its Prime Air cargo service and its recent acquisition of an ocean-freight-forwarder license in China, while Alibaba, having recently entered a partnership with COSCO Shipping to develop an integrated logistics platform for small and midsize enterprises, seems to be moving in the same direction.
Opportunities to further improve productivity also remain. One frequently proposed idea is unitization: developing a “box of boxes” would allow 20 or more containers to be unloaded together, lifted not by today’s quay cranes, but by giant gantry cranes spanning redesigned berths. This kind of innovation in loading and unloading will be essential for handling the 50,000-TEU ships of 2067.
Wholly automated terminal and inland operations, with self-driving trucks transporting containers to inland distribution centers will probably become the norm in the next couple of decades.